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Tuesday, May 22, 2018

The Five-Percent Solution

If Sherlock Holmes were to examine Business Insider, he would surely wonder why that website so rarely publishes content about the insides of businesses.  What might impress Sherlock more would be a great article in which they recently charted how high-income and low-income Americans spend their money.

The lede of the article is that poor people get taken to the cleaners on housing and transportation costs, while rich people tend to spend an inordinate amount of money protecting their assets and personal position.  And within that context there's a little nugget that's relevant to the comic and hobby game industry, that rich and poor alike spend about 5% of their money on entertainment.

Further in the article we get breakdowns of household and individual spending on entertainment in raw dollars.  Household:

And individual:

The discrepancy by income level shouldn't be a surprise.  Five percent of a big number is a lot, while five percent of a smaller number is less.

But do you see the far more relevant thing, in terms of this industry?

Take a look again and see if you can get it.  I'll wait.  In fact here's a nice photo of a customized SNES console to give you some spoiler space.

See it yet?

More context.  Five percent of the total spending is on entertainment.  Of that, only some portion is going to be on tabletop games or even video games.  Some will be on movies, some on concerts, sporting events, outdoor recreation, bowling nights or beach vacations, even people visiting the glow-in-the-dark mini golf place next door to us.

Let's go out on a limb and say that our average customer is someone who spends half their entertainment dollars on our merch categories.  Then we have to remember that there are Amazon, TCGPlayer, and other comic and hobby game stores!  Let's be extremely generous and say that our specific store gets a fifth of that figure.  So a tenth of their total entertainment expenditure.

Now do you see it?

Look at how those absolute dollars correlate to the prices of the stuff we sell.

Oh my goodness, right?

Look here.  At one tenth, a rich household spending $5,919 per year on entertainment probably spends $600 in our store.  A poor household spending $1,270 per year brings us all of $120.

On the individual scale, $1,909 for the rich is just under $200 per person to us, while the poor, at $747, are going to end up spending about $75 per year as individuals.

And if there was ever a hard lesson that a store can't count on serving the same group of grinders day in and day out, that should be it.

There isn't enough money coming from any one customer segment or cohort to support the business.

Now let's be more fair.  I cater to some devoted gamers, for Magic and other games, competitive or casual but undoubtedly focused, who spend a hell of a lot more than $600 every year and aren't even rich people.  In some cases there are guys who drop most of that in a month and aren't rich, though a few of them are professionals dragging in decent coin and so they're well enough off to afford it for sure.  And hey, some people just obsess on a narrow range of hobbies.  Nothin' wrong with that.  Lord knows that's what I do.

But the reality is any given face that comes in the door, we're going to be lucky if they bring us, on average, more than $75 to $200 worth of annual sales.  While that's a number I am perfectly happy to cater to, it also is a number that tells us some crucial things:

1. We must always be acquiring new customers, because the existing regulars cannot be expected to float the entire store on their own.  It's not fair to them and not realistic to expect this.  Many, many clubhouse stores expect essentially this to occur.  We must be welcoming to the visitor who is not already deeply geek-literate.  The curious, the dabbler, the person interested enough to poke their nose in the door and see what they find.

2. We should be highly skeptical of products that sell for more than $75, and doubly so for products that sell for more than $200.  Because those products are effectively non-starters for a significant part of our audience, or would constitute nearly the entirety of their annual spending with us.  When Wizards of the Coast says that booster boxes are not a meaningful purchase configuration for the majority of Magic players, maybe they aren't as obviously wrong as Magic-focused stores and competitive players assume.  And yet we've had over a year now of product overload.  Knoweth the left hand what the right hand is doing?

3. Positive experience cultivation with each transaction is far more important than we already rated it.  And we already considered it pretty damned important!  This unfortunately empowers negative review culture, which as we all know is the clap.

4. Many aspects of the comic and hobby game industry are too fiddly to withstand the implications of these numbers.  Which, again, are skewed generously in our favor for the purpose of this exercise, so you have to imagine they're worse in application.  Comics look better proportionately when you consider this; a pull-box customer who gets four titles a month is well within the parameters.  Wide categories like video games and board games are a bit safer here.  For something like Warhammer, it seems like they're utterly dependent on deeply committed hobbyists way on one end of the scale.  I can't imagine how other wargame miniatures ever gain traction.

5. A gasoline price spike basically wipes out the entertainment fund for poorer people, if we're taking into consideration the initial graph showing that they incur an outsized burden from housing and transportation expenses.  Did it happen that way in the past?  It's tough to isolate this effect from the general economic meltdown of 2008-2009, but we already know a ton of game stores went under during that time-frame; was this another piece of the equation?  I bet if we had sufficient data collection to see the expenditures by income level, we'd see the poor player spending dropped off right around the time we were at $4/gallon.

It seems like every time I learn more about business, I wonder why I'm in this particular industry that seems to swim against every economic and social tide with such reckless abandon.  That might just be our value proposition, the fact that we're here to delight the people whom the rest of the recreation industries have disregarded.  But it sure does suggest that we've voluntarily made it more difficult for ourselves to make a living.

Anyway, time for me to go enjoy some of that food that I spent somewhere between 11% and 15% of my household income on.

Tuesday, May 15, 2018

I Was an Oblivious Customer

This is a story about when I was an oblivious game store customer.  But so you understand the significance of what I was doing and the bad assumptions I was making, I first must teach a lesson about the product that was central to my behavior.

Once I graduated from law school and didn't yet have a multitude of children occupying my time and attention, I re-indulged myself in the video game collecting hobby.  One of the rare items then, and one that was visibly getting rarer as we went, was the Nintendo Gamecube Official Component Cable, shown in this photo.

The GCN OCC was only marketed in Japan and thus only available via import distributors or stores that did business though them.  The OCC used an ASIC (Application-Specific Integrated Circuit, or in other words, "a custom chip with secret innards") to process video for output.  Nintendo never published the specs of the ASIC, so third-party cable manufacturers could not create substitute cables.  For 16 years, if you wanted to get 480p video out of your Gamecube, it was the OCC or nothing, and there weren't enough OCCs to go around.

(Aside: As of 2006 we could play most Gamecube games in 480p on the Wii, which had a cheap and abundant component cable.  However, the Wii did not work with all Gamecube games, it did not work with all third-party Gamecube accessories, and it did not work with the Game Boy Player, a non-trivial drawback at a time when the Game Boy Advance was getting hot titles like Metroid Zero Mission that played great on a television.  And if you wanted to speedrun or play competitively, you had to use the original hardware for your time or score to count.)

At the time I was seeking it, the OCC ran anywhere from $80 to $140 on Amazon and eBay, depending whether it had the original packaging or was used, and if so, its condition.  I tried to hunt one down in the wild, naturally assuming that any video game store that had one would be unaware of its value and would surely sell it to me for the MSRP of $29.99 or so.  After all, knowing the value of video game merchandise was only how they literally made their living, so surely they'd punt that and I could roll them.

Every time I visited a video game shop of any stripe, I would browse what they had, and naturally I wanted to be left alone because autism.  But I knew I'd eventually be greeted and asked if I needed help.  The question I had locked and loaded for that was "Do you have any Gamecube Official Component Cables?"

They never had the cable and only rarely did they offer to "special order" it, which I imagine meant getting it at a haircut less than full market value from an import distributor and marking it up, because they would throw back numbers like $200 and $250, to which I would reply "never mind." I wanted it, but not enough to really pay for it.  I wanted it to be essentially given to me for way less than it was really worth.  This was not a realistic expectation.

I would then judge that store to be "not a serious video game store" or "worthless" or "incompetent," depending what mood I was in at the time or whether I thought the owner had sufficiently kissed my ring and acknowledged my clear and impressive expertise in knowing to ask for such a rare and sought-after niche product.  It was self-centeredness to the point of narcissism, the kind of oblivious "whatevs, I got mine" attitude that is becoming more common every day, especially among the youth.

I eventually got an OCC in a Gamecube collection buy.  The other guy knew the value of it, and thanks to combining up the games and system into a lump sum, I ended up paying $150 or so for the cable at a time when the average eBay sold listing was around $175.  Not too bad and we both got what we wanted.  I made a joke post to Facebook with a photo of the cable complaining, "I bought a Gamecube and the stupid TV cable has the wrong colors!  What the hell!"

Today, the GCN OCC market price is down to around $250, after a couple years in $500 territory for complete-in-box and $350 bought loose.  The reason the price actually started coming back down to earth is that players finally got another option.  In late 2017, sixteen years after the Gamecube hit the market, someone finally reverse-engineered the OCC ASIC and produced direct-to-HDMI output adapters for the Gamecube.  We carry them in the store, the EON GCHD, and it's $149.  Not cheap, but far cheaper than the alternative, and it works beautifully and is well-suited to modern televisions which don't even always have component input jacks anymore.

So, anyway, the point was that I was an absolutely oblivious customer and my behaviors were way out of line with reality, both in terms of the market overall and in terms of how I interacted with store personnel.  And at the time I had no awareness or insight into that.  I was just another blowhard who had no idea how stupid I looked to the pros behind the counter, and I was a tire-kicker to boot.

Most of my customers today don't behave the way I behaved.  Most have realistic expectations, or more to the point, they want a thing and it's within the core of what we offer, and that's why they showed up, and all is right in the world.  Most understand intuitively that the store makes its hay selling the stuff that's new and/or broadly in demand, and that we won't necessarily be sitting on a secret stash of GCN OCCs or graded Summer Magic or an unopened case of NBA Elite 11.  It's not that we don't want to sell such things, obviously we do.  It's just that rare things are, well, rare, and the economics don't reward us for seeking out such goods and then deep-sixing them into the vault for who knows how long, rather than reselling them now.  Most people understand that, and those who do seek holy-grail-level collectibles aren't offended when the object of their desire isn't in stock all that often.  Most people don't obsess over having us kiss the ring.  But sometimes we get people who exhibit exactly one or more or my regrettable former traits.  And that's just how it goes, it's part of the trade.

Our solution to this from the staffing side is to be attentive toward new arrivals and to put a bit of extra care into how we service the more friendly and sociable of our regulars.  By starting people off on the right track and then providing a social payoff for exemplary behavior from the people we already know, we send a message that an inclusive and fun experience is what we're about, everyone who's on board with that are going to get our "A" game, and the scrappers are welcome to go be somebody else's problem.

My solution to this from the ownership side is to understand the psychology of the behavior I am seeing out of the one guy who's acting as I once did.  If possible, there may be common ground from which a positive experience can result.  There may be good in him yet.  If not, I accept that we're not going to please everyone, and reorient my focus toward the next visitor who arrives.

These solutions are imperfect, but a general goes to battle with the army we've got, not the army we wish we had.

Tuesday, May 8, 2018

Lefty Loosey, Righty Tighty

I wonder just how far into the world of electronic restoration this business might profitably go.  It is admittedly a pretty far cry from the selling of boxed analog tabletop game products, which we do on the regular.  But I'm having to face the possibility that if I don't to something in that space, I'm failing to monetize skill assets the company holds ready, and could train and develop further.

Sunday, our cash register iMac decided its hard drive had served long enough.  Beachballing so hard it could no longer load Safari or Mail, the terminal became useless, and I knew I had to replace or repair it.

Unfortunately, repairing iMacs isn't as easy as dusting crops, boy.

The 2012 and newer models are particularly difficult to service because the shell is held together by adhesive.  That's aside from the RAM drawer, which is the easiest ever to get into and requires no tools and even has instructions printed on the casing nearby.

Fortunately, this was a 2011 iMac, so I could get into it without cutting through destructible matter.  All it required was a heavy suction cup to unfasten the front glass, which is attached via a combination of fittings and magnets.  Then a Torx screwdriver keyed me the rest of the way in.  Had I only a RAM replacement to perform on this model, that can be done with nothing more than a Phillips and a few spare minutes.

The 3.5" SATA hard drive was easy enough to remove, though it has a custom thermal sensor rather than a SMART system so the iMac's fan will run too much unless or until I find a more effective solution than resetting the System Management Controller, which only temporarily convinced it to stand down.  Heat may not be as much of an issue because I replaced the bad hard disk with a solid-state drive I rescued from our old shipping desk PC that suffered motherboard failure a few months ago.  In fact, lacking a reinstall disc for macOS, I simply powered the system back up and it booted Windows 10 without incident.  It doesn't like to cooperate with the printers, likely due to driver mismatches, but I'm going to put High Sierra back on it anyway so that will be solved soon enough.  Bottom line, we have our cash register terminal back and it should run fine for a few years before being put out to pasture.

Most of you probably don't know or care what any of the foregoing means so I will tell you that the TL;DR of it is that I was able to perform a non-trivial repair on a computer that's not designed to be user-serviceable, saving the company $700 to $1200 depending on what a replacement would have ended up setting us back, or some several hundred dollars in repair labor and/or parts from a professional outfit somewhere in town.  And if someone had walked in the door with a similar need, provided that I had researched a bulletproof solution to the thermal sensor issue and practiced the repair in general, I could have had them out the door in under an hour with money in the bank on an economically sustainable deliverable.

And though it blew my Sunday itinerary out of the water because I was learning as I went, repairing that iMac was still high-value work.  If there's one thing owners in the greater comic and hobby game industry too often fail to do, it's to systematize basic or core work and spend more time doing higher-value work.

Core work is still important, because it runs the business.  But the people we hire are there to do the core work.  Moreover, it's what they expect to be doing.  Giving them good training and clear processes and turning them loose to impress you with their initiative is often the best way to have that core work be performed well.  Core work is going to succeed when you've cultivated competency and judgment through training.

Then the expert-mode play is to start training our standout staff members on how to do higher-value work.

What's the difference?  It's more than just how much money the work produces or saves for the company, though that's surely an important element.  With higher-value work, competency is upgraded to knowledge and skill, while judgment increases in responsibility.

Every time I teach a staff member how to do higher-value work, and they internalize and perform that work successfully, they get better and the business gets better.  And everyone's job actually gets easier, including their own.  I have given them greater agency.  And with effective conveyance of agency, an owner can start to achieve true duplication.  That achieves the dual purpose of making it possible for the jobs you hire to become careers, and freeing the owner from being chained to the dashboard.

So, does this mean I should start soliciting Mac repairs, as yet another step toward building this amazing business with high-value work and robust investiture of agency in my people and a bold future promising power strips on every countertop?  Well, maybe.  Probably not yet.  But looking forward, combined with some other things I'm keeping under wraps for now that I was intending to develop, this is looking like a sensible direction.

DSG already does a limited assortment of video game hardware repairs, a menu limited primarily by my ability to systematize it and train others to do it when neither me nor our silent partner who is an electrical engineer are available.  But it's an area that has already done well for us and where we are learning the problems now so we can set it up better as we go.  I already discovered we charged too little for a common NES repair.  Our success rate has been 100% on units serviced, and the process is close to mastered.  We can build in some gross margin and it's still a competitive price for the consumer.  That's solving a process.

Sadly, this suggests to me that my internal reservation that the store should have gone small, not big, and cut its focus down to Magic and video games, may have been the smarter course.  I still like the other things DSG does, and in fact as a gamer I am a board game player first and most often.  But mastery of a value proposition has more power, pound for pound, than diversity of value propositions.

The converse, however, is that diversity of value propositions makes the business far more resistant to failure, with revenue coming in from a nondependent array of sources.  That, coupled with our industry's headlong rush toward Third Place mechanisms, suggests that the gigantic space with a favorable lease was the correct long play after all.  We had better hope so, because we have 53 months left on that favorable lease.

I don't want to overthink the business implications of having swapped out the storage device in a broken computer.  But big things are made up of little things, and sometimes little things pack an outsized punch.  I wonder if this is one of those times.

Tuesday, May 1, 2018

Always Gets a Replay, Never Seen Him Fall

It's the First of May, so in addition to the Jonathan Coulton agenda (NSFW), we're seeing ASU move into final exams for the semester, and a few weeks later the rest of the schools will wrap up, assuming the teacher's strike doesn't add too many make-up days.  And that means the summer season is upon us, and customer footfall for suburban stores like ours should skyrocket.

And that means it's high time to get the DSG Vintage Arcade back bigger than ever!

I chronicled the Arcade's demise at our Gilbert location years ago right here on the Backstage Pass.  In that article, I wrote:
"The new location is being scouted and will be selected knowing that we intend to bring back all the glory of our vintage arcade many times over and we will need room to facilitate that.  I know I am setting a high expectation, but I also know how much amazing gear we have squirreled away right now, so I am confident of our ability to deliver on that promise."
And lo, it hath cometh to pass.

We have even more pinball and video awesomeness still yet to arrive, but the DSG Vintage Arcade right now is already the largest it has ever been, and is already earning better than it ever did.  It is, as observed in that article years ago, a draw all by itself.

So, without further ado, here is the arcade!

Right up front we have Street Fighter III: 3rd Strike, the pinnacle of fighting games on Capcom's CPS3 platform and to this day one of the core tournament versions of Street Fighter.  The 3KOAM cabinet features a lag-free CRT and Sanwa JLF-1 joysticks.

Moving inward from SF3, we have Marvel vs Capcom 2, a perennial favorite in the smash-up fighter genre.  This Sega NAOMI mainstay is run deliberately on an American Dynamo cabinet with Spanish IL joysticks, whose springs are preferred for combos that require a quick release to center.

Immediately after that we have the post-golden classic 720 Degrees by Atari.  If you ever heard the term "Skate or Die!" in any context having to do with skateboarding, know that it originated in this video game, in which you must perform tricks and stunts to earn and redeem tickets to the skateparks before a swarm of angry bees kills you.  Not even making that up.

Four pinball machines reside at DSG for now, with literally over a dozen more still in the process of restoration (though I doubt we'll get them all on the floor at once).  You've seen High Speed and Lethal Weapon 3, they arrived during the winter.  They are joined now by Data East Star Wars and the Pinball 2000 Star Wars Episode 1.  Star Wars is classic 1990s pinball and has a fairly basic rule set but some very satisfying shots, one ramp in particular that you'll repeat ad nauseam.  Episode 1, unlike the movie, is actually really good as a pinball game!  But the public displeasure at the movie bled over into the world of pinball, where the Episode 1 table, despite using the groundbreaking Pin2K platform that debuted with Revenge from Mars, was a commercial failure.  Williams actually folded their pinball operations in its wake, and it was a few years before Stern rose up to serve the collector market.  So, in an oblique way, Star Wars Episode 1 was so bad it killed the pinball industry.

Right past the pins we have a Neo Geo MVS-2 expanded to an MVS-4, with even newer, even sharper Spanish IL joysticks.  It's probably more correct to get square-gated JLFs for this unit, and if this were the Candy Neo 6 cabinet we had back in the original DSG, we'd surely do so.  But the control panel on the American MVS cabinets isn't a good fit for them.  Instead we use oversized square grommets under the fittings to ensure proper cornering, so that fighting game "fireball" movements go off without a hitch.  The unit runs Bust-a-Move/Puzzle Bobble, Metal Slug, Blazing Star, and a random cartridge we switch up from time to time.

I'm really happy we had one of these to bring in, because it's one of those classics that everyone remembers only when they encounter it, and then they just have to play, especially if you're with a friend, and the original arcade controls and screen are the only way it "feels" right.  Williams's Joust is an all-timer and we've got non-volatile memory on board so it will save your high scores.

We have a Dynamo cabinet with a Capcom CPS2 system installed, and that gives us access to the Street Fighter Alpha and Super series, the Vampire/Darkstalkers games, and a pile of great shooters and beat-em-ups.  But for a store like DSG where Dungeons & Dragons reigns, it was an easy decision to alternate this back and forth between Tower of Doom and Shadows Over Mystara.  There's a different wiring system we need to track down and we have a four-player control panel under construction, so that will also happen.

No MAME here, Billy Mitchell!  We play Donkey Kong on its original hardware -- almost.  With a customized ROM chip we have internet high score saving and leaderboards!  Play your best at DSG and become immortal!

Nintendo had some truly underrated arcade hardware.  This is our Playchoice, which thanks to some technical trickery has been enabled for NES cartridge play, with the following titles: Castlevania III: Dracula's Curse, Metroid, Mega Man, The Legend of Zelda, Super Mario Bros, Mega Man 2, Gauntlet, Tetris, Super Mario Bros 3, and Contra!

Next to the Playchoice is a Nintendo Vs Double featuring Super Mario Bros and Castlevania.  What's the difference?  These are harder versions meant to challenge expert players!  The Vs Super Mario Bros eliminates some duplicate levels and includes Lost Levels stages instead.  Here's the list of differences.  Meanwhile, Vs Castlevania adds enemies and takes away most of the wall chicken.

Many of you have played our Ms. Pac-Man multi, which runs the ArcadeSD motherboard for faithful renditions of such classics as the Pac-Man and Donkey Kong series, Frogger, Dig Dug, Qix, Tutankham, Galaga, Sinistar, and Zaxxon.  Here's the full list of supported games.

Finally, we have a Konami 4-player JAMMA system, which runs the Teenage Mutant Ninja Turtles games, The Simpsons, and Sunset Riders, the latter of which is not found in abundance in the wild, so we'll see if we end up finding one that's affordable.  (You don't really get to bargain hunt in the arcade world unless you're willing to buy non-working gear and repair it, which we usually are.)  We're going to continue alternating between and among whichever of those titles we have the hardware for, to ensure the four-player beat-em-up lineup remains fresh.  The restoration on this cabinet was especially well done, with authentic leaf-switch controls throughout and correct colors and graphics, though we haven't vinyled up the sides yet as they're not essential.

And that's it... for now!  I know the business partners are eager to bring even more pins and vids to the floor, and with the Swingin' Safari Mini Golf set to open next door on the 19th of this month, and the word "ARCADE" beautifully emblazoned on their front window, we're delighted to anticipate even more foot traffic for these great retro throwbacks.

It's great to be doing this again.  It's great to be doing something different in our sector of the industry, and something that we know the mainstream "gets."  Who knows, before long we might even figure out how to run a game store.

Tuesday, April 24, 2018


The weekend brought with it the prerelease for Magic's newest expansion, Dominaria, a throwback to the game's original setting with plenty of retro flavor and reasonable card power levels.

Yeah, it was a success.

Just about everything related to this release worked as intended.  Players were enthusiastic and the typical YouTube Pundits(Tm) weren't sh!tting all over the set yet, so turnout was at its highest level in two years.  In fact, our relatively large allocation sold out entirely.  A good time was had by many.  If Ixalan hadn't fallen right in the lap of our store move, we'd likely have been allocated even more and sold those out too.  Our Sunday events were less than 12 players each because that's all the product we had left.

Wizards of the Coast tried a pilot program by which stores could sell booster boxes, up to a quantity limit (60 boxes for our store), during the prerelease.  To make matters better, each box came with a store-exclusive promo foil card not found in booster packs.  The promo card, Firesong and Sunspeaker, looked well-tailored for the new Brawl format, a Standard-ized version of Commander.  Many local stores raced to the bottom as usual on price, looking this gift horse right in the mouth, but we held firm at our everyday price and sold out anyway.

I liked in particular that the early box offering helped local game stores as a direct leg up against the mass market and online dumpers alike.  Mass doesn't discount (usually), but they break the street date with regularity.  The optics are awful: local game stores look like chumps while players naturally buy early packs from Wal-Mart and Target when they can get them, because the new shiny is very compelling.  The Pokemon Company ships a week early to local game stores that hold prereleases, and that helps address the street date breakage.  Rather than copying that, Wizards tried something in line with their existing programming, and it proved out.

We'll be waiting eagerly to see what Wizards does in July with the Core Set 2019.  There are some internecine releases: Battleborn Battlebond in early June, a Conspiracy-esque ancillary booster release geared toward Two-Headed-Giant gameplay, as well as Commander Anthology II: This Set Had Better Include The Breed Lethality Deck, the Global Series set, From the Vaults: Jace, and probably another I'm overlooking at the moment.  Plus an Unstable reprint due in any week now.

Magic: the Gathering isn't the only thing going on right now.  But I've written at length about how I think diversification underperformed back when Magic was so hot that we'd have been better off committing deeply to it and not worrying about everything else.  I have real business going on in the other games and categories, so I'm not going to move away from those in favor of Magic, but I'm definitely going to be increasing stock depth for Magic moving into the summer.  Magic is about to have a dominant run, and Domin-aria started it.  I'm banking on that being the case.

After Core 2019, we get Commander 2018, which is sure to be another hit, and sometime in June we'll learn what's coming later after that.  Gen Con will be the grand finale of Magic's 25th Anniversary celebration -- the sky is the limit as to what they might do, and I really hope they don't undershoot the mark like Iconic Masters and Masters 25 did.  We're long overdue for a Collector's Edition 25, a.k.a. "Reserved List But Not Tournament Legal: The Set."  Or if you prefer, Proxy Party 25.  Whatever.  Print it.  Kitchen table players everywhere will take out second mortgages to buy it out.  In the fall?  In Keeping Secrets of Silent Ravnica 3 is my guess.

If you like tapping mana and playing spells and turning creatures sideways, 2018 is looking more and more like your year.

Tuesday, April 17, 2018

Convention-al Wisdom

It's about time for convention season again, and I'm seriously unsure whether or how much we want to participate moving forward.  I mostly pulled the plug on this business component after last year's Phoenix Comicon debacle, but opportunity continues to knock at our door.

Three years ago conventions were like free money for us.  The cost to deploy, staff, and depart, plus venue fees, was within the range where there was still plenty of meat on the bone after selling our stuff.  But in 2016 and 2017 we mostly saw that get worse.  Phoenix Comic Con (or Comic Fest, or whatever they have to call it now because of the San Diego Comicon trademark ruling) kept pushing table fees up into unsustainable territory.  PCF's sister show, Fan Fest, wasn't cheaper enough to account for the lower level of attendance we saw, which was reflected in lower sales.  And last year's PCC was a disaster due to the threat incident.  We ended up passing on Fan Fest entirely.

This year we were offered a chance to participate extensively in PCF as they rebuild the show in the wake of 2017's trouble.  Unfortunately, we didn't see it as economically feasible in the short term, and our long game right now is focused on maximizing our one mega-location.

We were given a second option to be present at PCF 2018 and vend our booth in a different part of the convention at a lower cost up front, a chance to cooperate with a longtime competitor for mutual benefit and maybe build some more positive history into that relationship.  We're still working out the details for that, as of this writing.

But mostly, the large comic conventions are getting to a point where we would need to have a specific, tailored, home-produced asset of some sort to feature, in order to cut through the noise and leave a lasting impression, and most of all to make money.  There's so much saturation and so much shovelware merch that even our eclectic curated offering doesn't quite cut the mustard.  So options like Salt Lake Comic Con are just not really on our itinerary at this stage.  Those shows don't really need yet another table full of Funko POPs and Pokemon booster packs.

Smaller festivals are much better on the base economics and staffing time needed, though sales are a greater gamble based on footfall.  Six years ago, Wes Cleveland and a group of arcade enthusiasts started Zapcon as an annual April convention, which I've enjoyed as an attendee multiple times.  In 2017, Wes opened up vendor offerings beyond the arcade collecting category, and I jumped at the chance to take part.  DSG's booth performed reasonably well and most of all we were in front of a more focused audience, so outreach actually had some traction.  At PPC we were just one more tchotchke dealer, but at Zapcon we were the main vendor of pop culture and tabletop goods, in addition to video game licensed merch and actual video games themselves.  We return to Zapcon this coming weekend for the 2018 installment and I am excited.

There's another medium-scale local convention in the video game space, console expert John Lester's Game On Expo in August.  It's fundamentally a good show.  Two years ago it didn't go well for us as their tabletop offering had some logistical problems and we couldn't exactly pivot to video games because 80% of the dealers in the room were highly focused there.  This may be a situation where we can participate again once we figure out the right mix of product, programming, and presentation.

We have a few microvending options, including a great local theater chain that lets us run a pop-up shop in their lobby when a major comic book or video game movie opens.  For them it just adds to the party and is a marketing tool.  For me, low venue fees and bounded hours of operation mean that my main cost exposure is low, and my worst case scenario is akin to handing out flyers at a sidewalk art festival.  I also get plenty of contact from area schools and churches asking if we'd like to vend.  It would be great to scale up offsite operations to the point where it makes sense to have a staff that works on that specifically.

That ties into the X-factor, which is: I will not be running the booth.  As an autistic person I find it tremendously difficult and exhausting to do that kind of work, meeting people in an endless chaos and retailing on the fly.  Some people thrive on that.  Not me.  Yes, in a moment of need I can step in, but it's foolish to put myself in that position in advance when other staff are going to do better at it... once I've developed personnel to that purpose, which means scaling to that level.  I've been fortunate to have one particular manager who is great at this work, but he's about to relocate for his day job and I won't be able to feature him in this role after that.

I'll look back on this article at the end of the year.  I wonder how things will unfold.  DSG can reach an audience in this channel, but I'm not going to do it in a half-assed manner if the same amount of time and resources spent in the main storefront will provide a better ROI.

Tuesday, April 10, 2018

Push Decay

Basic supply and demand tells us that there is a "sweet spot" for price at which it's low enough that the product meets its needed turn rate, but high enough that it's worth it for the seller to stock the item at all.  For a lot of merchandise, this "sweet spot" has an uncanny knack for converging with the market price of the item.  In the case of aftermarket (used) goods, it's typically exactly the market price of the item, to the extent that there's enough information symmetry that both buyer and seller know what that value is.

What many don't know is that the "sweet spot" depends on initiative, so to speak.  It's the market rate at which, offered and open, an acceptable number of people will answer "yes" and make the buy.  The sweet spot for a seller who is at leisure to wait is higher; they are content to get their price from the 5th or 10th or whatever buyer, who perhaps seizes upon convenience or needs the item faster or what have you.  Or else the seller is willing to let the two or three people underneath him on eBay sell their copies first, and then if no more of the item are posted for sale, he will be the lowest available price without having to make less than he wanted for the sale.  So clearly the seller who is operationally at leisure to defer the sale until later has the advantage.  The sweet spot for a seller who needs the item gone faster is lower.  The sweet spot for a seller who is going out of business and needs everything gone is low indeed, it's however low it takes to induce even an unwilling buyer to act.

In the case of durable goods, prices won't move much no matter what else is going on.  That Trane 4-ton HVAC system is going to cost you seven grand pretty much no matter what you do.  They don't need to sell it for less, because anyone who needs one is going to be motivated to shop on factors other than price, such as availability, reliability, and longevity.  If you need a cheaper air conditioner, there are off brands that Trane doesn't bother competing with.  The market for decent air conditioners is incredibly robust, it's an appliance people depend on and use heavily every day.  For these and other reasons, that price is basically firm.

In the case of indulgent luxury goods like, you know, tabletop games and collectibles, especially on the "ornaments" side of the business like artwork, statues, shelf decor, and so on, a seller trying to clear merch quickly often has to reduce the price a lot.  (And don't let yourself be led on that collectibles are robust investments.  They're not.  They're entertainment, and if you get anything out of them other than that, it's frosting on the cake, not a certainty, no matter what the clickbait tells you.)

This high degree of price volatility as a coefficient of turn rate is something that yours truly, an economic layperson, is dubbing "Push Decay."  I'm sure there's some real term for it that explains just how severe it gets the less of a staple good you're pushing.  But when you learn this concept as "push decay," it paints the exact picture of what happens to the goods when you do that thing.

The harder you have to push that merch out the door, the greater its value decays.

Now, the more staple or demanded a good is, the less push decay you'll observe.  This can even happen for indulgence goods.  The reason behind that, of course, is that once your price creeps down sufficiently far below the sweet spot, other dealers will buy you out.  Price memory can be a sticky thing and sellers don't want people thinking of good resilient brands as being low-value, so they'll buy your 15% off iPhone and flip it on a narrow margin at 95%, rather than reducing the price of all their own stock to match the new floor you've de facto proposed, whether you meant to or not.

Conversely, take an item that's almost pure fluff, especially one whose fifteen minutes are over, and especially one that's strictly ornamental... and look out below.  For example, I am overstocked at the moment on BoJack Horseman Funko POP figures.  BoJack is an excellent show, but it has already passed its mainstream popularity peak, and Funko's extremely odd knick-knack figures of the characters from that show appeal to a very narrow (and now diminishing) audience.  At full price, I get an occasional sale of BoJack himself, but no other characters.  At 20% to 25% off, there might be no change in movement.  At buy-one-get-one-free, they'll probably run out in an orderly fashion.  If I knock them down 75% and actually get the word out about it, they'll be gone in an hour.  Another dealer will come buy me out even if no collectors do.  A dealer whose branding is "we have ALL the POPs" will get a different benefit out of having those BoJack figures on the shelves, whereas DSG features POPs purely as a pop-culture garnish and not a central part of our product mix.  That dealer's bread and butter is POP figures and he won't want me getting people used to the idea that POPs ought to be 75% off, ever.

So it stands to reason that I don't really want to hold sales in general, which is consistent with advice I have been giving here in the past.  And in the event that I do put merchandise on sale, I want to figure out the point at which the sale will consummate reasonably quickly, but I won't lose too much value to push decay.

Over the weekend (and continuing until I feel like ending it), we ran a Spring Cleaning sale of a handful of things we just wanted off the shelves and turned back into money:

Apparel, which we're throwing in the towel on for now -- everyone says they'll shop quirky nerd t-shirts, but clothing is available very cheaply from a litany of other sources and unless we make a deep foray into it, we won't be competitive.  (And perhaps not even then.)

Funko POPs, as described above... sometimes it's just time to churn that stuff through.

We had a crate full of surplus playmats from various sources and it was time to convert those.

Finally, we got wind that a full-line restock of X-Wing was coming our way this summer, and that timing worked for some of our internal inventory-building goals, so we took this opportunity to empty the fridge and deep-clean the interior in anticipation of that.

The discount levels I offered in the sale reflected the amount of push decay we were willing to tolerate for each product subset.  For the shirts and playmats, not too worried -- deep discounts, come what may.  The Funko POPs went to half off, which is enough to move them with a bit of speed but won't ruin the punchbowl.  And X-Wing is 20% off, which we wouldn't have changed even if the MAP restriction had allowed it; we don't want to push the stuff into a lake, we just wanted to ensure it would attrit away in time for the reload wave.  Low discount, minimal push decay.

A final note on the concept of push decay is that a hobby game or comic store that is closing involuntarily or unexpectedly is in such a bad position in terms of being able to wait to get its price that the expectation should be well below wholesale prices on all the remaindered merch.  Anything with robust market value will sell for at least that much, but the back catalog is going to be in a deeply devalued state until a dispositive outcome occurs.

I've been approached by closing stores asking if I want mid-list merch for wholesale and it's like, buddy, sorry to have to tell you this, but if I wanted the mid-list stuff at wholesale, I'd just order it from a distributor.  Half the time there's one distributor or another offering that stuff on incentive, too.  And the purchase would help us maintain or increase our distribution volume tier.

When Critical Threat Comics closed and we were unable to acquire it outright last spring, the closing auction was a bloodbath on everything store-centric, but they got pretty decent money on the merch because ordinary members of the public were invited and they didn't have wholesale access otherwise.  Inviting the public seems like a great way to go about a liquidation auction, except that the store is way better off having a closing sale and getting those "better" prices sooner.  At that point the goal is merely to slow the push decay.  There is no stopping it, because the business body is already dead.